Spooked investors seek safer havens

Jim Smylie

Finance companies - particularly smaller, less-established firms - are feeling the pinch as investors spooked by the recent failures of Provincial Finance and National Finance 2000 look for safer havens for their cash.

In the wake of those receiverships, Tauranga-based Western Bay Finance has also struck difficulties.

It ceased making loans this week, citing a lack of funds as investors shied away from its debenture stock.

Western Bay chairman Jim Smylie blamed the negative publicity generated by the Provincial and National Finance failures.

Western Bay, with about $60 million out on secured loans and more than $45 million in debenture stock, is a relatively small player.

The chief executive of the Institute of Financial Advisers, Ross Butler, said there had been anecdotal evidence from institute members of less demand for debenture stock.

"People are being cautious about where they might put their money."

While there was typically a flight of funds to banks after the business cycle peaked, the Provincial and National Finance 2000 failures "have certainly been a hurry-up".

A number of commentators, including Strategic Finance chief executive Kerry Finnigan and KPMG banking partner Godfrey Boyce, have underlined the economic importance of finance companies which provided loans to businesses who could not access them from banks.

Boyce said declining investor sentiment may have some flow-through effect on some businesses by making it hard to access loans but that would be marginal.

"The mainstream of business will still be able to look to the major finance companies and still do business with them."

Finnigan, whose company has almost $500 million in assets, including $400 million in debenture stock, said there were signs investors were becoming more wary.

"It's difficult to measure, but my gut feeling would be that we would certainly be seeing a fall-off, probably due to [weaker] investor confidence arising around the failures," he said.

However, Finnigan said the fall-off came at the same time as Strategic was trying to reduce the amount of funds it received by reducing the rates it paid on debentures.

He said the company already had sufficient funds to lend into the property market.

Nevertheless, he was disappointed by the bad publicity the finance company sector has been receiving.

"Obviously any failure in an industry sector is going to give rise to concern about other players or participants in that sector.

"We're genuinely concerned as to how the market is going to react, Finnigan said.

"We would like to think there is a differentiation between the various finance companies in the marketplace but it's hard to get the message across to investors.

"It's a bit inappropriate for all of us to be tarred with the same brush," he said.

"But we're in the industry and clearly we're going to suffer when investors lose money and confidence starts to diminish."